SOUTH AFRICAN POLICE SERVICE SOUTH AFRICAN POLICE SERVICE DPCI NATIONAL ILLICIT CIGARETTES IN SOUTH AFRICA Priority Crime Management Centre Analytical Approach: To Focus on or/and Affect the Business System of Crime PERIOD: 1 APRIL 2017 – 31 MARCH 2018 1
BACKGROUND It will be seen that the name or reference in our view is rather a misnomer in that it does not amount to any illicit trade in tobacco but rather CRIMINAL ACTS Fraud or Tax Evasion in terms of the tax laws. The illicit cigarettes trade is defined as “the production, import, export, purchase, sale, or possession of tobacco goods which fail to comply with legislation” (FATF 2012). Illicit cigarettes trade activities fall under 3 categories: § Contrabrand: cigarettes smuggled from abroad without domestic duty paid. Counterfeit : cigarettes manufactured without authorization of the rightful owners, with intent to deceive • consumers and to avoid paying duty. Illicit whites : brands manufactured legitimately in one country, but smuggled and sold in another without • duties being paid. Cigarette smuggling, also informally referred to as “bootlegging,” is the illicit transportation of cigarettes or • cigars from an administrative division with low taxation to a division with high taxation for sale and consumption. The practice, commonly used by organized crime syndicates and rebel groups, is a form of tax evasion. •
BACKGROUND Modus operandi as followed by perpetrators regarding the illicit trade in tobacco • Smuggling genuine, counterfeit and illicit branded cigarettes; • Diversion of cigarettes intended for export; • Trading in illicit tobacco; • Non-reporting of income from trade in illicit tobacco to evade income and sales taxes; • Operating legitimate businesses as using the business as a front to facilitate illicit trade (from Zimbabwe to SA). .
BACKGROUND Primary role-players associated with the illicit trade in tobacco (Domestic vs Foreign role-players) Both play a major role on the: • illegal manufacturing, • importation and distribution, but the undocumented immigrants, and asylum seekers form the last part in the • value chain.
BACKGROUND How is the illicit trade in tobacco facilitated In the past the cigarettes have been found in trucks (false apartments in tankers and containers), false • declared in containers, in other commercial vehicles, hidden in passenger vehicles, planes, passenger trains, goods trains, border pedestrian crossings and carried across the border by persons (mules). Most of the illicit trade in tobacco involves the purchasing of manufactured products from the neighbouring • countries. Therefore the origin of the finance could be from any source possible. these items are thesold at way below market prices (i.e at R10, 00 and R15, 00 a packet) Regarding the illicit trade in undeclared production, cigarette meant for export and not exported, again the • origin of the finance could be from any source. It is rather sold within the country. In some instances I is imported under the premise that it is destined for another country but it is then • delivered to entities within the country. Sometimes the tobacco products form part of the barter system whereby another illicit product is provided to • the supplier.
NATIONAL STRATEGIC ANALYSIS NATURE AND EXTENT – ILLICIT CIGARETTES TRADE / SMUGGLING THREAT PERIOD: 1 APRIL 2017 – 31 MARCH 2018 IL ILLIC ICIT IT CIG IGARE RETTES SMUGGLING ING / / TR TRADE (N (Nationa nal and nd Trans nsna nationa nal) ) Na Nature e and Exten ent : Globally – So profitable is the trade that tobacco products are the worlds most widely smuggled legal product today. The illicit trade in tobacco products is a • multi billion-dollar business, fueling organised crime and corruption, as well as robbing governments of multi-needed tax money. Internationally 330-660 billion cigarettes a year are illicit- smuggled, counterfeit or tax-evaded. This is 6 to 12% of world consumption, losing governments US$20-40 billion a year in taxes and tobacco companies US$5-10 billion. [Source: Tobacco Institute of Southern Africa] Re Regional Trends : Recent research shows the extent of the illicit trade in cigarettes in South Africa. Is the illicit trade in cigarettes undermining tobacco control policy in South • Africa? A South African economist Evan Blecher, now with the American Cancer Society, argues that by 2007, illicit trade accounted for up to seven percent of the total market in South Africa. The tobacco industry has long argued that high taxes are responsible for the growth in illicity traded cigarettes, because higher prices encourage cross border smuggling, tax evasion and domestic production and brand piracy. The Tobacco Institute of South Africa, which represents most tobacco growers and cigarettes manufacturers, claims the size of the illicit market to be 20 percent of the total market. Consumption taxes on cigarettes in South Africa comprise two separate taxes, a specific excise tax levied per packet of cigarettes as well as Value Added Tax (VAT), levied at a • flat rate of 14 percent of value added. It is likely that there are other reasons, in addition to higher excise taxes, which have encouraged the growth in illicit trade in South Africa. Illegal traders in South Africa focus • and specialise in trade routes rather than commodities and a route can host a wide range of commodities over time, and several commodities at the same time. For instance, routes between South Africa and China include other illicit trade in addition to cigarettes. The illicit trade in a number of commodities has been able to grow in South Africa as a result of large and highly effective organised crime criminal networks. This has been compounded by weak border controls and corruption. Routes lead into the country through Botswana, Namibia and Swaziland. From the various interceptions • by customs authorities, the cigarettes appear to originate from China and Zimbabwe. [Source: Framework Convention Alliance – Economist Evan Becher] Na National Pr Priority Pr Provinces: A significant majority of illicit cigarettes trade/smuggling related crimes are concentrated in the No North Wes est, KwaZulu Na Natal and Limpopo However, • Mp Mpumalanga an and Ga Gauteng are emerging provinces where police action and monitoring of the threat is required. Statistics reveal that these five provinces have registered more illicit cigarettes/smuggling related cases for the reported period. Country of Origin: Zi Zimbabwe and Mo Mozambique , Country of Transit: Bo Botswana and Country of Destination is So Sout uth h Afr frica (o (on n smug uggled d cigarettes). ). • Research has indicated that 80% of illegal tobacco products found in the country today are produced domestically by manufacturers that are based or have a presence in South • Africa. Ke Key Th Threat t Drivers : • Vu Vulnera rabilities that fuel cigarettes smuggling: Porous borders , , weak control and enforcement measures, relaxed transit procedures, insufficient capacity, weak criminal q penalties, Money Laundering and corruption which facilitates organised crime. Fo Forms and methods of cigare rettes smuggling: Omission of customs officials at official exit and entry points, use of illegal crossing points, misclassification of goods, falsification q of documents, false declaration of country of origin. St Struc uctur ural So Socio-Ec Economic Conditions : Unemployment, Poverty, Inequality. q
NATIONAL STATISTICAL COMPARISON PICTURE INFORMING SELECTION OF DOMINANT PROVINCES:- PERIOD: 2016/2017 AND 2017/2018 FINANCIAL YEAR PROVINCE 2016/2017 2017/2018 % NORTH WEST 183 112 -38.8% KWAZULU NATAL 116 66 -43.10% LIMPOPO 136 61 -55.14% MPUMALANGA 167 38 -77.24% GAUTENG 138 35 -74.7% -2.8% WESTERN CAPE 36 35 NORTHERN CAPE 15 24 60% EASTERN CAPE 31 13 -58.06% FREE STATE 47 10 -78.8% Total 869 394 -54.7% The above table depicts the percentage Increase and Decrease on Illicit Cigarettes Smuggling/Trade Prevalence in all nine (9) provinces in South Africa according to the GACS BI System . Through PCMC analysis, It was realised that overall there is a decrease of -54.7% for the reported period, Therefore the decrease is due to low detection of cases. 7
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